Premium Article

5 Undervalued Stocks With Momentum

Susan Dziubinski

Twilio (TWLO) shareholders are smiling these days. Why? They own the best-performing stock in our coverage so far this year, up a whopping 170% as of this writing. Perhaps not surprisingly, shares of the communications platform-as-a-service company are overvalued by our metrics, trading at a 52% premium to our fair value estimate and landing in 2-star range.

Yet outperformance and overvaluation don't always go hand in hand. We base our fair-value estimates on our expectation of future cash flows; we also take into account the predictability of those cash flows, encapsulated in our uncertainty ratings. Recent performance plays no role in our fair value assessment. We're focusing on long-term intrinsic value. And as a result, stocks that have rallied may not have reached our estimate of their long-term intrinsic value.

Susan Dziubinski does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.